Financial Services Industry Overview

Wealth Management Market Size

The U.S. wealth management market was valued at around $376 billion in terms of revenue, as of 2016. The U.S. market will likely grow at a rate of 4.4% in terms of NIA (net investment assets) between 2016 and 2021, in alignment with the overall growth rate for the North American region. Additionally, the U.S. will see an absolute growth of $5.25 trillion, in terms of NIA, between 2016 and 2021.

The high-net-worth segment (households with $1-10 million) have the largest share of the U.S. wealth management market at 42.6%. Globally, the "volume of net investable assets of high-net-worth individuals (HNWI+) will increase by around 25% to almost US$70 trillion by 2021," according to EY.

In terms of channels, the RIA channel, online brokerage channel and digital advice channel are the only channels expected to see growth in the coming years, according to an industry insider, Chip Roame.

In terms of business models, the holistic wealth management model is expected to overtake the market within the next ten years, gaining a share between 20% and 30% by 2025, while most of the other key business models will see significant declines as a result.

methodology

In order to fulfill your request, we relied on reputable industry reports which provided a robust number of insights on this topic, along with insights from reputable industry insiders. While we were able to locate a significant amount of insight which pertains to this topic, we were not always able to locate insights regarding breakdowns within the specific verticals you mentioned as examples (e.g. undeserved consumer segments, regional bank channels, broker-dealer firms channels, DIY business models, full service business models etc).

This is because, while a full deep dive of each of these breakdowns could likely reveal more specific data, we were not able to fully investigate each of these niche segments within the scope of a single Wonder request. However, given that you had only referenced these specific verticals as examples, we have included a significant number of insights that pertain to the market sizes and growth projections (as available) broken down by consumer segments, channels, and business models. The specific verticals that we did choose to focus on were those suggested as being the most relevant, according to the latest and most reputable industry reports and analysts.

U.S. market size of the Wealth Management industry

According to 2017 insights published by Autonomous Research, a "leading independent research provider on the financial sector," the 2016 market size of the U.S. wealth management industry was estimated to be around $376 billion in terms of revenue. There were around 124 million U.S. households participating in this industry, that collectively maintain investable assets worth $36.8 trillion, with investable assets being defined as "household net worth less illiquid assets such as residence and private company shares."

A 2018 report published by EY reported the following market size figures and projections for the North American market size in terms of net investable assets (NIA):

Growth Rate of the Wealth Management industry

According to a 2018 global wealth management report published by EY, the U.S. is the leading growth market within the total global wealth management industry. Together, the U.S. and China hold a 45% share of the global wealth management market. The top five leading countries in this market are expected to make up "more than half of global NIA growth through 2021." Between 2016 and 2021, the U.S. market will experience an absolute growth of $5.25 trillion, in terms of NIA.

As a whole, the North American region will see the "largest growth in NIA." Through 2021, the North American region will have a growth rate of 4.4%, almost on par with the overall growth rate of 4.7%.

MARKET BREAKDOWN BY CONSUMER SEGMENT

Autonomous Research provides a very useful graph which shows the 2016 U.S. wealth management market size broken down by consumer segment in terms of ultra-high-net-worth, high-net-worth, mass affluent, emerging affluent, and retail market households. For your convenience, we have synthesized this data into a spreadsheet, which you can access here.

This spreadsheet breaks the data down by consumer segment and is broken out by overall revenue share of the market in terms of dollars, overall share of the market in terms of the number of households participating in the market, and overall share of the market in terms of total investable assets. Using this data, we have performed several calculations to determine the market share breakdowns of these segments in terms of percent. The calculations for these shares can also be found within the spreadsheet. Below, we have provided an overview of the consumer segments in terms of revenue market share.

As stated above, the U.S. wealth management market size in terms of revenue is around $376 billion, according to Autonomous Research. The market share breakdown of consumer segments are as follows:

- The ultra-high-net-worth segment (households with over $10 million) has a market share about 7.2%.

- The high-net-worth segment (households with $1-10 million) has a market share of about 42.6%.

- The mass affluent segment (households with $250K-$1 million) has a market share of about 23.7%.

- The emerging affluent segment (households with $100K-$250K) has a market share of about 7.9%.

- The retail market segment (households with less than $100K) have a market share of about 18.6%.

During our research, we did not come across many significant insights regarding the growth of these segments, as they pertain to the U.S. market. However, we were able to learn the following information:

- At the global level, the "volume of net investable assets of high-net-worth individuals (HNWI+) will increase by around 25% to almost US$70 trillion by 2021," according to EY.

- Baby boomers hold 93% of 401(K) assets, and are expected to maintain the largest market share throughout the next five years, and possibly longer.

- According to one industry insider, millennials are "irrelevant to the wealth management industry."

MARKET BREAKDOWN BY CHANNEL

In terms of channels, we did not happen to locate data on channels that pertain specifically to your given examples (i.e. wirehouses, regional banks, broker-dealer firms, private banks, registered investment advisors, discount / online brokers, and independent broker-deals firms). Despite this, we did locate some qualitative insights from a reputable industry insider, which we felt would be helpful for you.

Chip Roame of Tiburon has been working as a leading consultant in the wealth management industry for the past 20 years. He recently was a keynote speaker at the 32nd Tiburon CEO Summit. With regard to channels, Chip suggests that "the only categories with meaningful growth in the space will be the RIA channel, the online brokerage channel and the digital advice channel. Everyone else is losing share and these trends should persist."

Chip also makes the following observations:

- Around "500 successful wirehouse brokers make the move each year" from working as a wirehouseadvisor and switching to an RIA, or starting their own RIA.

- Indexing and socially responsible investing (SRI) are expected to "see explosive growth" in the coming years.

- The U.S. market size for SRI is currently around $8.7 trillion, which is "almost entirely institutional," as SRI has not yet caught on within retail investing. However, Chip believes that this segment will grow in popularity among retail investors as "more people seek to align their values with their portfolios."

MARKET BREAKDOWN BY MODEL

In terms of business models, we did not happen to locate data on models that pertain specifically to your given examples (i.e. DIY, hybrid, assisted / full service, AUA (assets under administration) vs AUM (assets under management) vs fixed fee). Despite this, we did locate some very recent and relevant insights from EY which cover the most distinct business models within this industry.

While these are global insights, we have chosen to include them, given the insights above, which show that the U.S. and North American markets are on part growth-wise with overall global growth projections, and because these regions are the largest and fastest growing within the global market.

According to EY, the most distinct business models as of 2018 are: diversified product specialists, family offices, independent wealth advisors, boutique finance houses, traditional wealth managers and holistic wealth managers. EY states that the holistic wealth management model "is set to emerge in the not-too-distant future with the potential to affect all markets and create a lasting and deep impact."

In terms of assets under management (AuD), the following declines in growth across these business models will occur through 2025:

Holistic wealth management is expected to capture all of these lost shares, as this model is expected to grow significantly over the next decade. Within the global market, holistic wealth management will increase from close to a 0% share to a 20-30% share by 2025. Despite all the decline across the other models, boutique finance houses appear to remain relatively unaffected and unchanged. For the future, EY predicts that "the future business model focuses on the wealth manager’s technology and digital infrastructure, and is increasingly independent of the advisor."

conclusion

In closing, we have conducted research into high-quality industry reports in order to gather insights on the U.S. market size and growth prospects of the wealth management industry. Additionally, we have provided available breakdowns in terms of consumer segment, channel, and business model.

Part

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Part

02

Tax Preparation - US Market Size

While there is no pre-existing market report focusing strictly on the independent segment of the US tax preparation industry, the existing public information has enabled us to triangulate the following results: As of the 2018 tax season, the independent tax preparation market will consist of approximately 120,000 individuals with a combined market size of $4.23 billion.

Below you will find a deep dive into the known data points and the methodology behind our triangulation.

METHODOLOGY

Conventional market reports, such as this one from IBISWorld, provide only very high-level data in their abstracts, so we will attempt to triangulate the requested market segment. To do so, we will operate under the following assumptions for the purposes of our calculation:

1) The total market revenue is evenly split among all tax preparers, whether they operate independently or work for a large firm. For example, if a firm employs ten preparers, they will account for ten times the revenue share of a single, independent preparer. This assumption may not be entirely accurate, but we were unable to locate any information from a credible public source (e.g., an industry expert) which casts it into doubt.

2) Since the most recent data on the number of independent tax preparers is just over two years old, we will assume, for calculation purposes, that the increase in independent preparers is equal to the annual growth of the market over the previous five years minus the reported national inflation rate. This assumption builds on assumption #1.

KNOWN DATA POINTS

IBISWorld's market abstract reports that in 2017, there were 319,139 people employed in the tax preparation market, spread among 135,331 businesses. It also reports that the total annual revenue for the industry in 2017 was $11 billion and had grown at a CAGR of 5.7% from 2012 to 2017. Following that growth pattern, the 2018 market size would have grown to $11.7 billion. The actual growth in a oneyear period may differ from the average but we will not be able to confirm nor deny that until a market report is released post-season.

A 2016 article by CPA Practice Advisor reports that there were an estimated 111,000 independent tax preparers at that time. While we nominally eschew sources older than 24 months, in this case, the report is just barely out of our timeframe and it provides the most recent available estimate (at least in the public sphere). It is also backed up by a 2018 Franchise Help article that notes that 37% of tax preparers are independent individuals.

A caveat about the above data: We located a separate 2017 market report which has a much lower estimate of the total market, with only a $6.99 billion total market and 102,000 employed individuals. However, that report is based on "comparisons and benchmarks of all financial statement items for the leading companies within the Tax Preparation" market, which implies that it may not only be leaving out the independents, but the 53% of smaller tax preparation businesses which employ less than ten people. We therefore understand the IBISWorld report to simply be more comprehensive, and, therefore, most relevant to the question.

In terms of the market growth, after a thorough search we were unable to locate any source that indicates that the independent tax preparation segment is growing at a different rate than the 5.7% of the wider market. However, in February 2016 the IRS did propose new regulations which might prevent non-credentialed individuals from acting as independent third-party tax preparers. According to a 2018 article, this has not occurred yet, but the passage of such regulation would constitute a major disruption of this market segment which would drastically alter its growth in ways that we cannot predict.

CALCULATIONS

The US inflation rate was 1.3% in 2016 and 2.1% in 2017, which for the sake of our calculation we'll simply average as 1.7%. Subtracting that from the industry CAGR of 5.7%,we get a 4% growth in the number of tax preparers. This indicates that there would be about 120,000 independent tax preparers in 2018, compared to a total of 332,000 tax preparers total (also adjusting the IBISWorld employment figures and rounding both for the sake of convenience). This means that 36.1% (120 / 332) of all tax preparers in 2018 would be independent and, pursuant to our calculation assumptions above, 36.1% of the total estimated 2018 tax preparation market of $11.7 billion would likewise belong to independents, binging the market size at $4.23 billion. This is extremely close to the Franchise Help estimate that 37% of tax preparers are independents, and so we can have a very high confidence that this number is correct.

CONCLUSION

We therefore triangulate that the independent tax preparation market for 2018 will comprise approximately 120,000 individuals who will have a total market value of $4.23 billion (11.7 * 36.1%). This gives an average revenue of $35,250 per person, which is reasonable for seasonal work by a qualified individual. We expect this market to grow at a CAGR of 5.7% as the total tax preparation market, with the caveat that the IRS has proposed regulations in the past which may reduce the number of qualified individuals at a future date. Based on this and the other confirmations we found in our data points, we have a very high confidence in this triangulation; however, if more detailed information is required, the IBISWorld report may be of use.

Part

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Part

03

CPA Trends

There were 664,532CPAs in the US at the end of 2016, and the demand for more will be very high in the coming decade, meaning that they will typically be younger than the current average. Technological advances in cloud computing, tax software innovations, mobile accounting, OCR technology, and social media are trends that are impacting the supply of CPAs in the US.

Introduction

As per the request, our research team has compiled the following report on the key trends in the supply of CPAsin the US. In the US, as of 2016 there were 664,532CPAs, decreasing in the share of over-50 years of age in 2017. This is leading to a shift in teaching leadership, partner accountability and strategic planning for these younger CPAs. As the supply is set to increase over the next 10 years by 10%, the age decrease trend will continue as younger people will be employed. The supply of CPAs will become more flexible and dynamic with technology trends such as cloud computing, tax software innovations, mobile accounting, OCR technology and social media making for a more connected and accurate CPA.

CPA as a supply

As of 2016, there were 664,532CPAs in the US and the exam for becoming one wasn't getting more difficult by 2018. With a projected growth of 10% as an industry by 2026, the supply will become much larger as more people seek certification. This means that more students will become CPAs, continuing the age trend that is decreasing the share of older CPAs. This, in turn, is leading more firms to focus on leader development, partner accountability and strategic planning in order to compensate for less experienced CPAs.

Technology

Some trends that were predicted to affect CPA have yet to pass. AI and blockchain tech have failed to disrupt the industry as of 2017, but it may take several years for these trends to be accessible to the CPA supply as a whole. After enough time, much like the internet, these technologies will proliferate and become mainstays of the CPA occupation.

Other technologies seem ready-made to make the CPA supply more versatile and accurate however.

1. Cloud Computing: This is a type of Internet-based computing that allows accountants to perform tasks from any location. This allows the accountant to spend more time with the client and focus on business strategy. This enables more independent CPAs as it lessens the storage need for their own equipment. For instance, a Cetrum cloud computing product for CPAs indicates such a product will help CPAs stay "up-and-running with zero downtime, especially during tax season," which is the "key to productivity." Cloud computing will allow CPAs to eliminate "outdated in-house IT systems or spend more valuable time and resources than necessary."

2. Innovations in Tax Software: These innovations can help improve accuracy and streamline audits. Such products allow CPAs to provide e-signature capabilities to clients and make sending and receiving electronic documents easier and more efficient. CPAs are able to use this software to "catalog and annotate digital PDF files" in the same way they would if they were using paper. Understanding these innovations is important for accountants who want to do auditing work. With higher accuracy and more streamlining, CPAs can retain quality of work for more clients.

3. Mobile Accounting: More accountants are reliant on mobile devices to do their jobs. Firms can manage their business on-the-go with mobile accounting. Such technology allows CPAs to use their tablet or mobile phone to access their "tax and accounting documents anytime, anywhere." These solutions offer flexibility in project completion and in personal life management, allowing CPAs to meet clients where they are rather than waiting for clients to make appointments they may not keep. As more millennials gain the need for accounting services, there will be more need for mobile solutions since millennials expect technology to solve many pain points previous generations would put up with. One such pain point is requiring them to come to an office when mobile technology is readily available.

4. OCR Technology: This enables accountants to convert digital files into editable and searchable data. It has helped streamline the archiving process and allow accountants to be more nimble in their processes. By archiving more easily, CPAs can deal with larger amounts of documents with more agility. They can "focus on the more technical aspects of their jobs while also introducing more accuracy and precision into mechanical tasks." Advanced OCR technology has numerous benefits for CPAs, including "better auditing and reporting on expenses," "faster processing of accounts payable," "improved payment processing," and "absorbing all kinds of information" like receipts, transactions, checks, texts, and presentations.

5. Social Media: This can help accountants better connect with current and potential clients. It is an important marketing tool according to experts, who believe that social media can "help [CPAs] start a conversation, reach new prospects and better position [them] or [their] firm as the premier tax experts." With it, more and more networks of potential clients can be drawn into hiring a social media savvy-CPA. The America Institute of CPAs even developed a "series of tax tweets and posts" that members could use on their firms' social media pages to facilitate these conversations. CPAs can "choose from five varieties: Holiday/themed, year-round, tax season, CPA truths and - brand new - tweets from the 2017 'Life Changes, So Do Your Taxes, Talk to a CPA' campaign." The organization launched these tweets and posts to help CPAs "reinforce the message that [their] value as a CPA reaches far beyond preparing one tax return."

In all, these technologies will make for CPAs to be more distributed, accurate, nimble and to be more accessible to clients. This in turn produces more jobs that are done competently and efficiently, requiring less CPAs than normal to complete the same job. This allows more usage out of the total supply of CPAs.

Conclusion

In conclusion the US has 664,532CPAs, with a younger population leading to a shift in teaching leadership, partner accountability and strategic planning. As the supply is set to increase over the next 10 years by 10%, the age decrease trend will continue as younger people will be employed. The supply of CPAs will become more flexible and dynamic with technology trends such as cloud computing, tax software innovations, mobile accounting, OCR technology and social media making for a more connected and accurate CPA. Technology like AI and blockchain will slowly become more used in the field like the internet first was, and eventually may be indispensable to the field.